CRN Monthly Channel Research Report, July 2005
Executive Summary:
Solution providers' overall sales expectations edged up in June after hitting a yearly low the previous month. The expanded and revised CRN spending expectations index (see below) came in at 79 last month (with April 2004=100), up from 77 in May. Gains in security and software related categories more than offset weakness in hardware and networking.
Despite the increase in sales expectations in June, the general trend has been downward in recent months. Solution providers continue to trim sales expectations in the small and midsize company market, with expectations below year-earlier levels. CRN continues to believe, however, that solution providers are underestimating the future strength of sales in the small and midsize company market segments. However, the outlook for the large company segment (firms with at least 1,000 employees) is more uncertain.
The list of the top 10 products and technologies that solution providers plan to sell or recommend to their small and midsize business clients showed little change in June compared May. Security and networking categories continue to dominate the list, holding the top four positions.
Security-related categories hold the top four positions on list of the 10 categories where solution providers have the highest near-term sales expectations. Firewalls and anti-virus top the list, and it is no coincidence that these are also numbers one and two on the list of top 10 products and technologies that solution providers plan to sell or recommend to their business clients.
Solution providers are also shifting their sales expectations in response to changing market conditions. In June, three new categories joined the list of the top 10 categories where solution providers have the highest near-term sales expectations. These included PC servers, remote access and storage hardware. These results are not surprising; the appearance of remote access on the list, for example, reflects the increasing capabilities of wireless systems and the increased flexibility it brings to the business workforce. [ See CRN's June Solution Provider Survey]
In a disturbing trend for solution providers, large companies as a group may pull back on technology spending in coming months, according to the June CRN Business Spending Survey. Fifty percent of large companies (with at least 1,000 employees) surveyed last month expect to boost their IT budgets over the year. This is down sharply from 67 percent in March, the last time these companies were surveyed. These trends are consistent with other data from the Spending Survey that show the relative importance of technology spending declined in June compared to March for both Internet-related and hardware/software categories.
The news is not all bad for the channel, however. Despite the shift in spending plans, more than three times as many large companies plan to increase technology budgets than plan to lower them. And despite the overall drop in the relative importance of technology spending, the level of spending priority increased in June compared to March in several categories, including security, wireless, online payment systems, peripherals and PC servers. [ See CRN's June Business Spending Survey]
1. Monthly Solution Provider Survey
A. Near-Term Sales Outlook
Solution providers' overall sales expectations edged up in June after hitting a yearly low the previous month. The expanded and revised CRN spending expectations index (see below) came in at 79 last month (with April 2004=100), up from 77 in May. Gains in security and software related categories more than offset weakness in hardware and networking.
Among individual technology categories, sales expectations increased in June compared to May in areas such as storage hardware and software, security (including firewalls, anti-virus, anti-spam and intrusion detection), managed services, website design and development, enterprise application integration, CRM, and Unix servers.
But sales expectations declined in a number of other categories, including desktops, notebooks, networking hardware and software, peripherals, Linux, business class communications services, application development tools, and data warehousing.
Despite the increase in sales expectations in June, the general trend has been downward in recent months. Solution providers continue to trim sales expectations in the small and midsize company market, with expectations below year-earlier levels.
CRN continues to believe, however, that solution providers are underestimating the future strength of sales in these two market segments. Economic growth, which sets the foundation for business technology spending, remains solid. Data from CRN's Business Spending Survey show that midsize companies (with between 100 and 999 employees) gearing up their spending plans. A recent survey by the National Federation of Independent Business, a 600,000 member advocacy group based in Washington DC, shows that small business owners have a positive outlook about their own sales growth in coming months, and higher sales revenue means more money available for technology investment.
The outlook for the large company segment (firms with at least 1,000 employees) is more uncertain. As the CRN research data below indicates, enterprise firms are not as optimistic about their spending plans as they were three months ago. On the other hand, a survey by the Business Roundtable, an organization made up of CEOs at the largest U.S. firms, showed that half of the 160 members surveyed expect to boost capital spending over the next 12 months. Solution providers are optimistic, raising their expectations for near-term sales growth, but it remains to be seen if these expectations will be realized.
The revised CRN Spending Expectations Index covers 29 different technology product and service categories (more than quadruple the number of categories covered in the "old" index) and provides a much more comprehensive picture of trends in solution providers' sales expectations. Along with the overall figure covering all 29 categories, a series of subindexes has also been derived showing trends in solution providers' sales expectations in hardware, software, security, and networking.
Because April 2004 was the first month that data was available for all 29 categories, it is the "base" month for the new Index, against which expectations for all following months will be compared. Figures for the new Index and the older Index that CRN had published previously are not comparable due to the difference in category coverage. For convenience, figures for the new Index going back to April 2004 are included in the charts below.
| CRN Spending Expectations Index (April 2004=100) | |||
| June 2005 | May 2005 | June 2004 | |
| Overall | 79 | 77 | 92 |
| Hardware | 77 | 80 | 98 |
| Software | 80 | 76 | 87 |
| Networking | 75 | 79 | 88 |
| Security | 90 | 79 | 100 |
\
|
CRN Spending Expectations Index (Overall)—Historical Data \ (April 2004=100) |
|
| April 2004 | 100 |
| May | 105 |
| June | 92 |
| July | 103 |
| August | 91 |
| September | 99 |
| October | 105 |
| November | 93 |
| December | 129 |
| January 2005 | 116 |
| February | 94 |
| March | 100 |
| April | 85 |
| May | 77 |
| June | 79 |
\
|
Sales Expectations by Market Segment \ (percent of solution providers expecting sales growth of at least six percent*) |
|||
| June 2005 | May 2005 | June 2004 | |
| Large firms | 55% | 53% | 50% |
| Midsize companies | 52% | 55% | 56% |
| Small businesses | 58% | 62% | 66% |
| Government | 44% | 44% | 50% |
| * in the three months following the date shown | |||
Base: 255 responding solution providers in June 2005
CRN Spending Expectations Index (Overall)—Historical Data
\
(April 2004=100)
Sales Expectations by Market Segment
\
(percent of solution providers expecting sales growth of at least six percent*)
CRN Spending Expectations Index (Overall)—Historical Data
\
(April 2004=100)
Sales Expectations by Market Segment
\
(percent of solution providers expecting sales growth of at least six percent*)
1. Monthly Solution Provider Survey
B. Solution Provider Recommendations to Business Customers
Comments: The list of the top 10 products and technologies that solution providers plan to sell or recommend to their small and midsize business clients showed little change in June compared May.
Security and networking categories continue to dominate the list, holding the top four positions. Anti-spam moved up in position last month, from tenth place to fifth place. The percentage of solution providers planning to sell or recommend anti-spam solutions to their business clients has increased steadily this year, from 37 percent in January to 48 percent in June.
Peripherals, on the other hand, fell from seventh place to tenth place. Storage hardware declined from fifth place to seventh place. None of the remaining categories showed a significant change in their position on the list.
Base: 255 responding solution providers in June 2005
1. Monthly Solution Provider Survey:
C. Hot Growth Categories
Comments: Security is the single highest spending priority for companies of all sizes, according to CRN's Business Spending Survey. Moreover, security is increasing in importance as a spending priority for midsize companies (with between 100 and 999 employees) and large firms (with at least 1,000 employees.)
Under these circumstances, it is not surprising that security-related categories hold the top four positions on list of the 10 categories where solution providers have the highest near-term sales expectations. Firewalls and anti-virus top the list, and it is no coincidence that these are also numbers one and two on the list of top 10 products and technologies that solution providers plan to sell or recommend to their business clients.
Solution providers are also shifting their sales expectations in response to changing market conditions. In June, three new categories joined the list of the top 10 categories where solution providers have the highest near-term sales expectations. These included PC servers, remote access and storage hardware. These results are not surprising; the appearance of remote access on the list, for example, reflects the increasing capabilities of wireless systems and the increased flexibility it brings to the business workforce.
New to the list in June: PC servers, remote access, storage hardware
Dropping off the list in June: business class communications services, networking hardware, custom systems/white box
Base: 255 responding solution providers in June 2005
Source: CRN Monthly Solution Provider Survey
2. Business Spending Survey
A. Large Company IT Spending Plans
Comments: In a disturbing trend for solution providers, large companies as a group may pull back on technology spending in coming months, according to the June CRN Business Spending Survey.
Fifty percent of large companies (with at least 1,000 employees) surveyed last month expect to boost their IT budgets over the year. This is down sharply from 67 percent in March, the last time these companies were surveyed. Fifteen percent of enterprise companies expect to reduce their budgets over the same period, up from only nine percent in the March survey.
These trends are consistent with other data from the Spending Survey that show the relative importance of technology spending declined in June compared to March for both Internet-related and hardware/software categories.
The news is not all bad for the channel, however. Despite the shift in spending plans, more than three times as many large companies plan to increase technology budgets than plan to lower them. In addition, more than four out of five large companies that expect to boost technology budgets over the next 12 months said they are "strongly" or "extremely" committed to doing so. Only 58 percent of firms that expect to reduce technology budgets have that level of commitment to doing so.
And despite the overall drop in the relative importance of technology spending, the level of spending priority increased in June compared to March in several categories. Among Internet-related categories, these include security, wireless, online payment systems. Hardware categories such as peripherals and PC servers are also likely to offer growing sales opportunities for solution providers in the enterprise market segment. Software sales growth, in contrast, is likely to be more muted.
Solution providers themselves remain relatively optimistic about near-term sales growth, with 55 percent of those surveyed in June expecting growth of at least six percent in the enterprise market segment over the following three months. Whether this optimism is warranted in the longer-term, however, depends on if the trends cited above actually come about.
Base: 125 large company IT executives surveyed in June 2005
Source: CRN Business Spending Survey
’How committed is your company to making the planned changes in IT spending?’ (percent of large companies citing each choice)
A. Businesses planning to increase spending 55% are extremely committed—spending increases are already being instituted
31% are strongly committed--spending increases are very likely to be implemented in the near future
11% are moderately committed--spending increases are under active consideration for the future
3% are slightly committed--spending increases are under discussion but not likely to be implemented any time soon.
B. Businesses planning to decrease spending 32% are extremely committed—spending decreases are already being instituted
26% are strongly committed--spending decreases are very likely to be implemented in the near future
26% are moderately committed--spending decreases are under active consideration for the future
26% are slightly committed—spending decreases are under discussion but not likely to be implemented any time soon.
Base: 62 large companies planning to increase spending, 19 large companies planning to decrease spending, surveyed in June 2005.
Source: CRN Business Spending Survey
John Roberts is CRN's director of research. He can be reached at [email protected].